In 2010,The Federal Reserve Board amended Regulation E to require financial institutions to obtain a consumer’s opt-in before charging an overdraft fee for ATM withdrawals or one-time debit card transactions.
The rule doesn’t cover checks or automatic payments made through the automated clearinghouse system, however.
In 2012, the Consumer Financial Protection Bureau (CFPB) launched an inquiry into checking account overdraft programs to determine how those practices affect consumers. The inquiry focused on four main areas:
A Federal Deposit Insurance Corp. study showed that 9% of checking accountholders bear about 84% of all overdraft fees. In addition, more than 46% of young adult accountholders incurred overdraft fees. Fifteen percent of them had more than 10 overdrafts in one year.
In 2013, the agency issued a white paper summarizing findings from its analysis of overdraft practices, based on supervisory data from large banks. The data suggested a number of possible consumer protection concerns, including how consumers opt in to overdraft protection coverage for ATM and one-time debit card transactions, overdraft coverage limits, transaction posting order, overdraft and in sufficient funds fees, and involuntary checking account closures.
In July 2014, the CFPB released a report, “Data Point: Checking Account Overdraft,” that provides more information about the effects on consumers who do and do not opt in to overdraft coverage for ATM and one-time debit card transactions.
In April 2015, the agency issued its first overdraft fine against Regions Bank in Birmingham, Ala. The bank was fined $7.5 million and has refunded about $49 million in overdraft fees to customers who were charged overdraft fees but hadn’t opted-in for overdraft coverage.
The CFPB also found that Regions Bank delayed fixing the violation until almost a year after it had been discovered. The bank’s account materials had wrongfully stated it would not charge overdraft fees for ATM and one-time debit card transactions unless customers opted-in.
These misrepresentations were found to constitute deceptive acts or practices in violation of the Consumer Financial Protection Act.
In its “Spring 2015 rulemaking agenda,” the CFPB noted it’s continuing to analyze issues related to overdraft services in connection with checking accounts. The agency plans to conduct additional research to determine whether rulemaking is warranted.
If the CFPB proceeds with a proposed overdraft rule, it could be issued as early as this fall. Any such rule would likely have a significant impact on credit union overdraft programs.
Although an effective date for any final overdraft rule may seem like a long way off, it might make sense to review your overdraft program now and consider:
Also, make sure you provide clear and concise disclosures about your overdraft program, including fees and terms.
MICHAEL McLAIN is CUNA’s senior federal compliance counsel. Contact him at 608-231-4185 or at firstname.lastname@example.org.